New material on `future-proofing', the `Free the Future'
model, and a new section on exclusion payoffs.

Revision 1.7

24 Jun 1999

esr

Minor update; clarify criterion (e) in payoff analysis.

Revision 1.5

24 Jun 1999

esr

Minor update; point at definition of `hacker'.

Revision 1.3

23 Jun 1999

esr

First public release.

Revision 1.2

18 Jun 1999

esr

First private review version.

Revision 1.1

20 May 1999

esr

Initial draft.

Abstract

This essay analyzes the evolving economic substrate of the open-source
phenomenon. I first explode some prevalent myths about the funding of
program development and the price structure of software. I then
present a game-theory analysis of the stability of open-source
cooperation. I present nine models for sustainable funding of
open-source development; two non-profit, seven for-profit. I then
continue to develop a qualitative theory of when it is economically
rational for software to be closed. I then examine some novel
additional mechanisms the market is now inventing to fund for-profit
open-source development, including the reinvention of the patronage
system and task markets. I conclude with some tentative predictions
of the future.

Indistinguishable From Magic

In Welsh myth, the goddess Ceridwen owned a great cauldron that
would magically produce nourishing food—when commanded by a spell
known only to the goddess. In modern science, Buckminster Fuller gave
us the concept of `ephemeralization', technology becoming both more
effective and less expensive as the physical resources invested in
early designs are replaced by more and more information content.
Arthur C. Clarke connected the two by observing that ``Any
sufficiently advanced technology is indistinguishable from
magic''.

To many people, the successes of the open-source community seem
like an implausible form of magic. High-quality software materializes
``for free'', which is nice while it lasts but hardly seems
sustainable in the real world of competition and scarce resources.
What's the catch? Is Ceridwen's cauldron just a conjuring trick? And
if not, how does ephemeralization work in this context—what spell
is the goddess speaking?